Brexit: “France is not the bad guy”

Adrien Paredes-Vanheule

30 August 2017

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Voices from players of the French asset management industry have raised to contest controversial memo leaked last July in a British newspaper. Also a number of London-based managers could relocate to Paris by the end of the year. InvestmentEurope reports.

“They are crystal clear about their underlying objective: the weakening of Britain, the ongoing degradation of the City of London.”

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The Brexit story has taken a vaudeville air last 16 July when British newspaper The Mail on Sunday leaked a memo of the City’s Brexit envoy Jeremy Browne about a trip he made to France in June to discuss the matter.

In the memo, Browne reported that the French Central Bank is “in favour of the hardest Brexit” and wants disruption. “We should nevertheless have our eyes open that France sees Britain and the City of London as adversaries, not partners,” he wrote.

By a timely coincidence, InvestmentEurope has caught up in Paris on 17 July – the day following the leak of the memo – with Xavier Parain, head of Asset Management Directorate at the French financial market regulator and Eric Pinon, the chairman of the French asset management representative body AFG.

“France is not the bad guy,” Pinon says regarding the memo’s leak.

“We have not voted for Brexit. British voices suggesting France would like to fight the financial City of London get it wrong for two reasons. Even with the Brexit, the UK will remain an important economic partner for European financial places. Also, global, mainly US, asset managers will not completely leave from a key hub overseas that keeps an edge regarding certain aspects of the investment industry,” AFG’s chairman argues.

“The evolution of issues such the loss of fund passporting rights in Europe and the setup of potential letter-box entities shall be monitored closely. We highlight that the same rules shall be applied to EU and non-EU based investment firms in order to avoid an unlevel playing field. We do not want to let the door opened to things we would not be able to control later,” Pinon (pictured above) emphasises, referring to the “serious risks of development of letter-box entities in the EU” raised by ESMA in its latest report.

He says that in order to avoid the misuse of delegation in a post-Brexit world, and if Esma does not have the necessary tools, it should be considered that EU institutions amend the relevant Directives.

Pinon also suggests that France is not taking its chance on “stealing” financial services but it rather wishes to repatriate services that were withdrawn from France and developed in the City, Luxembourg or Ireland.

“No plans for delegated investment management cut”
In France, a number of players within the asset management industry report fears from UK-based asset managers that France would eventually manage to cut all delegated investment management to British firms post-Brexit.

“We have absolutely no plans to do this. France is not trying to close business opportunities in France for non-French managers. We are pleased with French investment firms delegating management to British, US or Japanese asset managers if they find a better expertise on certain asset classes in these companies,” says AMF’s head of Asset Management Directorate Xavier Parain (pictured left).

“Regarding open distribution and marketing we are not against a sane competition between players. We want the financial market to be the largest and most opened as possible in order to provide French investors with an access to a large range of diversified fund offering,” he adds.

Parain asserts that the French regulator’s view goes beyond Brexit, quoting the example of Mifid II. On the contrary of certain European regulators for which Mifid II means investment firms will only sell a careful selection of funds to a certain type of investors, the AMF plaids for more open-architecture and an access to the deepest fund offering for investors.

Parain highlights that Brexit may possibly alter the relationship between the EU and the UK and that the delegate investment management possibilities between French firms and UK asset managers will more or less resemble to these existing between French firms and US asset managers.

“We are vigilant on the way delegated investment management outside EU will be strictly overseen by asset management companies based in Europe. That means that EU entities willing to delegate will need to have sufficient means to control all investments that are delegated.

“If they establish themselves in France, the AMF will then monitor closely their structure to ensure that the framework around delegated investment management is robust enough to control the delegation. Our message is no different from that of Esma,” he explains.

Moving out
Relying on various sources, InvestmentEurope can reveal that at least three London-based asset management companies have filed documents with AMF to be granted an asset management licence in France. They should obtain the regulator’s green light and move to Paris in Autumn.

By the end of 2017, three to six more London-based boutiques may relocate to Paris.

Among potential departing managers remain Clerville Investment Management. The firm’s partner Alban de Clermont-Tonnerre said to French newspaper Le Monde that it could be taken for granted that Clerville Investment Management is to open an office in Paris.

“In the event of a hard Brexit, investment firms operating from London will have to adjust their business plan if they want to continue developing their business in continental Europe,” Parain acknowledges.

AMF’s head of Asset Management Directorate only confirms that 30 to 40 cases of investment firms that consider moving all or part of their activities from London to Paris.

“Small and mid-size hedge funds that tally French individuals within their staffs are logically thinking of Paris as an option,” Parain says.

Paris-based consulting and advisory firm Reinhold & Partners, whose business includes the setup of asset management companies in France and abroad, has been alongside the company for its relocation in France.

Bertrand Gibeau (pictured left), partner and head of Business Development at Reinhold & Partners, says: “Eleva Capital has paved the way for other moves. We mostly target London-based asset management that have French top executives or employees ahead of Brexit. It appears there are multiple criteria to select a new base.

Gibeau counts meetings with around 30 companies and says those worrying the most about Brexit are these with a large investor base located in continental Europe.

Would the decision of an asset management giant to relocate part of its European activities to Paris make the case for the French capital?

“A move to Paris from an asset management giant might trigger other moves. If the three top investment firms relocate their European headquarters to Paris, the three top brokerage companies might follow.

“But London-based boutiques give a lot of importance to the successful transfer of Eleva Capital to Paris in their considerations because they may think that an arrangement has been found between the French authorities and large asset management players. A question remains: what is worth for the competitiveness of Paris as financial hub? One BlackRock or 30 Eleva Capital?” Gibeau concludes.